Construction contracts and construction operations looked at again

“All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, the fresh-water system, and public health, what have the Romans ever done for us?”

As I learnt from reading Akenhead J’s judgment in Savoye v Spicers, the Romans also gave us the words “construction” (the origin being the Latin verb “construere”, which broadly means “putting together”) and “structure” (the origin being the Latin verb “struere”, which apparently means something that has been placed, built, arranged or prepared).

Why, I hear you ask, would Akenhead J be considering such terms? Well, Savoye v Spicers is an adjudication enforcement case that turned on the question of whether a contract for the installation of an industrial conveyor belt system in a factory was a “construction contract” for the purposes of section 104 of the Construction Act 1996. It all turned on the meaning of “construction operations” (in section 105).

Let me explain.

Savoye v Spicers

In early 2013, Spicers engaged Savoye to design, supply, supervise and commission a new conveyor belt system at its existing factory site in Smethwick, West Midlands. Clause 21.2 of the contract provided for adjudication if the agreement was “a ‘construction contract’, as defined in Section 104” and the TeCSA adjudication rules were said to apply.

By the end of 2013, Savoye had completed the conveyor belt’s installation. However, things did not run smoothly, with Savoye in dispute over money it said it was owed and Spicers arguing about the quality and performance of the installation.

Matters came to a head in June 2014 when Savoye served its notice of adjudication. An adjudicator was appointed and Spicers objected, arguing that the adjudicator lacked jurisdiction because the works were not “construction operations” within the meaning of section 105 of the Construction Act 1996.

Neither Savoye nor the adjudicator agreed and, in August 2014, the adjudicator issued his decision, awarding Savoye some £828,000 plus interest. Despite Spicers’ quality and performance defence, it had not served the requisite payment notices, as were required to permit it to reduce or withhold payment.

The matter ultimately ended up in enforcement proceedings before Akenhead J. From the judgment it is clear that he was content that sections 105(1)(a) to (c) were engaged because industrial conveyor belts must fall under “industrial plant” in section 105. Therefore, the dispute turned on the question of whether the conveyor belt formed “part of the land”.

Akenhead J went into considerable detail about the relevant law, including the law of property and his Roman references, which he drew together and summarised at paragraph 36. Ultimately, in the context of what had gone before, his conclusion that the conveyor belt did form part of the land was relatively short (see paragraph 44), and was based on the fact that there were “substantive and extensive fixings” of the conveyor belt to the floor, the conveyor belt was very substantial and was a relatively permanent installation.

No pay less notice

The case is obviously interesting because it provides further guidance on when objects in buildings might form part of the land. However, such cases are relatively infrequent.

I think that a more interesting aspect of the judgment is the adjudicator’s decision on the substantive dispute, which Akenhead J touched on at paragraph 9 where he stated that:

“the adjudicator decided that, by operation of the payment provisions of the HGCRA’s Scheme, Savoye was entitled to be paid what it had invoiced because Spicers had not served the requisite notices such as would have permitted it to reduce or withhold payment.”

It is interesting because Matt and I have both talked about cases involving payment notice issues in recent weeks (the Harding v Paice and ISG v Seevic cases). This case is yet more evidence that adjudicators are applying the law strictly when it comes to payment and pay less notices. I think that it is really important that adjudicators continue to do so, regardless of the merits of a dispute, otherwise the process will become uncertain and parties and representatives will not know where they stand.

I’ve heard some in the industry complain that payees are ending up with windfalls (at least temporarily) as a result of adjudicators applying the law concerning payment and pay less notices strictly. However, we must remember that it is just as likely that the payee is awarded nothing, despite the fact that a sum might be owing on the merits. This can be as a result of a defective default payment notice.

What could the Romans have done for Spicers?

It appears (although it is by no means clear) from the above extract that the adjudicator found that the payment provisions of the Scheme for Construction Contracts 1998 applied, which suggests that the original payment provisions did not comply with the Construction Act 1996.

Given that the contract expressly envisaged that the agreement might constitute a construction contract for the purposes of the Construction Act 1996 (see clause 21.2 of the contract), it begs the question as to why the payment provisions in the contract did not comply with those of the Act. Perhaps Spicers should have asked the Romans to draft Construction Act compliant payment provisions for them!

MCMS Ltd Jonathan Cope

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